Alphabet shares tumble over 12% as AI spending raises investor concerns

Alphabet Inc. saw its shares fall more than 12% in Thursday’s U.S. trading session, erasing roughly $500 billion from its market capitalisation and reducing its valuation to about $3.46 trillion. The decline followed an earnings update that showed a cash-flow loss of $9.07 billion for the quarter, nearly double the $5.9 billion loss recorded in the prior period and far above analysts’ expectation of a $2.7 billion negative cash flow.

The company’s third-quarter capital expenditures rose to $51.4 billion, reflecting its large investment in artificial-intelligence infrastructure. Analysts noted that the shift toward AI-generated search results and competition from other AI services could curb the volume of ads served on Google’s core search platform. Search advertising revenue grew 12% to $63.35 billion, but the growth rate fell short of market forecasts for the second consecutive quarter.

"Worries are weighing on the entire AI industry following a frenzy to build data centres and fill them with AI chips," a research note from Commonwealth Bank said.

"Investors are underappreciating the breadth and depth of Alphabet’s AI monetisation and the rapid upcoming growth in Google Cloud," Morningstar analyst Malik Ahmed Khan added.

Despite the sell-off, Alphabet reported a 25% increase in overall revenue to $127.6 billion, driven largely by Google Cloud, whose revenue more than doubled to about $31 billion. The cloud segment’s backlog was described as five times its quarterly sales, providing visibility for continued AI-related investment.

Alphabet remains one of the world’s most valuable companies, slipping to the fourth-largest spot behind Microsoft, which announced a redundancy plan affecting roughly 60,000 employees. Microsoft’s shares were largely unchanged after it met earnings expectations, while Amazon’s stock fell 7% in after-hours trading after issuing a weaker-than-expected sales outlook.